Fintech ?? Food - 4th April 2020

Hey everyone ??, thanks so much for coming back for more Brainfood. A space to learn in public and hopefully process everything happening in fintech.

This I got to host a podcast all about Payroll APIs with Plaid, Pinwheel, and Branch. Ever been curious about the world of Payroll APIs? We run through what is a payroll API, who’s using it, and how they can help us re-imagine credit.

So much fintech and crypto news this week picking the stories and good reads to cover was like picking my favorite limb, I’m attached to all of them. Alex’s write-up of Cash App is culture is phenomenal and worth your time. You’ll also see in the rant this week, I cite a few very influential pieces on creators and fintech.

Oh and in case you missed it, here is part 1 and part 2 of the YCombinator W21 batch of fintechs with some analysis for your reading pleasure :). Remember to hit subscribe if you’re liking this content, and sharing is caring.

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Weekly Rant ??

This week, I had a great twitter spaces conversation with Sterling Proffer from Creative Executive Officers and Matt Bivons from Canopy. That chat essentially inspires this week's rant. Keep an eye on my Twitter account for future twitter spaces conversations :).

Fintech for Creators is 1% finished

Creator is a term for anyone who makes their living from creating content. That could mean video, music, art, writing, or some other form of creative endeavor. Creators have existed for a long time, but the creator economy is new (well, kinda, VCs have been writing about it for a couple of years, and Youtuber has been a full-time profession for nearly a decade).

Unlike the gig economy, where platforms aggregate low-skilled work with demand, creators sell individuality, creativity, and a sense of connection.

Everyone from Mr. Beast creating Minecraft video game content to Ben Thompson's excellent Stratechery blog is a creator.

A creator essentially is a one-person business whose front office sales and marketing are their content and craft. The creator's distribution is digital (via a platform), and their back office is a mix of online tools.

The new tools. 

In the canonical "Power to the Person," Packy points out that vertical platforms and horizontal tools are emerging for creators.  

• Vertical platforms like Tiktok, Youtube, and Substack allow the creator to run their entire business in that platform, make, monetize and manage (to some extent).
• Horizontal platforms, like Descript, Stripe, or Linktree, are tools that more broadly help the creator grow, manage and monetize their audience.

Packy points out that putting together his Not Boring stack:  "It's a ton of work, but it's not complex."  But Packy is a freak (in a good way); his job is knowing about these platforms.  What about artists who are just great at art?Li Jin called it the need for the rise of the creator middle class, but I think it might even be broader than that.

Not all creators are created equal.

For decades we've seen artists begin to own more of their distribution as they become successful. Whether it hip hop artists creating their label, or movie stars building their own production company, the real money is in understanding the business of creativity.

When it works well, you get 

• Ben Thompson, who makes $3m a year from subscriptions to his tech-focussed newsletter and podcasts
• Recording artist RAC launching a creative agency for NFTs
• Mr. Beast now getting into equity crowdfunding for creators
• The Generalist running an NFT art experiment generating more than 20 Eth

But there's a problem. Sterling Proffer pointed out that not all creators are created equal. There is, in fact, a kaleidoscope of different creator archetypes.

• Creators who are just good artists and not business people
• Creators who are still employed / afraid to make the jump
• Creators who haven't figured out all the tools yet

So if you're good at this stuff, there's money to be made. If you're creative but not an entrepreneur, it's still way too hard.

The creator's middle and back office is broken.

Vertical tools create platform lock-in.  Creators and platforms are often at odds as platforms look to own content, manage IP or lock, make changes to algorithms that are key to those creators' business model. The platforms bring massive distribution but at the cost of control.

Horizontal tools need aggregating and data portability too. The explosion of horizontal tools for creators is fantastic but requires some significant config and learning to get it all working together. Let's say you've never heard of Stripe Atlas or banks like Mercury, or worse, you have the absolute gall to not live in the United States but be creative. How do you create a business, get an account, file your taxes 

A new class of creator aggregation tools is emerging.  The most well-known is Stir, which aggregates accounts like Patreon, Youtube with audience insights and cash flow insights. Stir also helps creators manage collaborations with each other, split cashflow and collect the income. Juice is also heading in a similar direction and includes equity crowdfunding for the early creators.

These aggregation tools will no doubt help and take some of the leg work out of running a creators business, but there is so much open space in;

• Setting up the business
• Creating audience moments
• Creating unique audience incentives

There is so much opportunity in fintech for creators.

What if there was a Stripe Atlas for creators? Stripe Atlas is for startups who need to manage equity and includes discounts like Amazon Web Services.  What if Atlas helped with creator crowdfunding, collaboration and offered discounts on tools creators use?  You could argue a generic tool as Atlas doesn't need to do that, and maybe we'll see this on the Stir roadmap in time but what makes Stir powerful is that it is the aggregation platform and not the underlying horizontal service.

What if creators could create fintech services around events or promotions?  My good friend Will White always talked about the Beyonce concert dream where, for everyone in that space, could have a real-time 50% discount on any merchandise bought on-site, and all proceeds go to charity. The crazy thing about this is we have all of the technology; it's just too hard to use. No matter how good the BaaS provider, the financial product itself is limited by the underlying systems of record (at the bank or payments processor). We need to separate product logic from the system of record and make it creator-friendly.

When you add these ideas to things like RACs creative agency to help manage NFTs, you can see why they call it the creator economy. There's a whole supply chain of services being built for the new digital world of content, individuals, and audience. And that's exciting.

What would you build? What's missing for creators? Hit me up. Maybe that's our next Twitter Space :).

4 Fintech Companies ??

1. Canopy - Bank and Credit products as a Service

• Canopy looks like many BaaS 2.0 providers; they allow entrepreneurs to build Neobanks or similar product experiences across debit and credit.  The twist from Canopy is that making unique financial products is too hard.  Most Neobanks have the same features (get paid early, no fees at ATMs, etc.)  
• Canopy provides a rich toolset to create truly unique products by pulling the product construction away from the underlying payments processors or FDIC-insured bank. This sounds like a nuance, but it's critical. When I spoke to the founder Matt, we agree on the architecture for getting this done. All core banking systems and systems of record define what a financial product is. Suppose you take that out of the core system of record and build products from much smaller primitives? (That's precisely how 11:FS Foundry works incidentally. )

2. Airbank  - Banking and Treasury for digital businesses

• Airbank aggregates various bank accounts with services like PayPal, Shopify, and Stripe to provide a single dashboard for cashflow insights, permissions, and payments. Airbank is based in Germany and doesn't have a natural competitor locally.
• It reminds me of a cross between Bank Mercury and Modern Treasury.  Mercury gives you the card and then provides all of the tools to connect to your other services; Airbank focuses more on the existing tools' aggregation. Where Modern Treasury is very payments focussed, Airbank is leaning into insights and data and connectivity to other tools and platforms.

3. Ensemble - Expense tracking for co-parents

• Ensemble is aimed at divorced parents who need to track and manage shared expenses. It allows expense tracking and has a neat system to propose what costs are split.  Too many single parents manage expenses alone, have ad-hoc relationships, or trouble communicating, which is where Ensemble steps in.
• Having just raised a $3m seed, Ensemble sees users track an average of $1000 per month and already seeing organic growth through the app store as co-parents rush to solve this problem.  I love this for a couple of reasons 1) This is close to the customer pain, not the banking, and could justify a SaaS subscription 2) It's a spin-out from Citi Ventures. Proof banks have teams who do get customer problems and how to solve them. More of this, please ??

4. Nested - The digital real estate agent (UK)

• Nested provides digital tools for buyers and sellers, including a viewings calendar, detailed feedback from interested buyers, and then a dashboard to review offers as they come in.  They offer "no sale, no fee" and help with the project management overhead that comes with moving house.
• Real estate agents are among the least trusted professions in the UK (ranking just above politicians and journalists and behind the even bankers).  The property sector is still so full of paper and manual processes and lacks trust. It is ripe for the kind of change that digital in the UK brought to banking.  

Things you should know ??

1. Ramp looking to raise at $1bn from Stripe and D1 Capital

• Ramp, the expense management card, is looking to raise a round that could value it at $1bn. The sheer amount of fintech for SMBs in the past year has been significant, and Ramp is one of the companies leading the charge in this space.
• ?? My Analysis: What I've always liked about Ramp is their attention to detail.  Ramp includes slack integration for expense management, identifying potential cost savings, alongside standard features like accounting integrations and virtual cards neatly.
• ?? My Analysis: Brex, Mercury, Modern Treasury, and Ramp are all playing in that space before a company gets big enough to implement Oracle Net Suite.  Is anyone building the Net Suite killer, or is the moat too high?

2. Big week for Crypto 

Visa now settles USDC, and 

Morgan Stanley invests in NYDIG

• Visa announced it would offer settlement in USDC, meaning a Visa partner could send USDC to Visa for any value it needs to settle across the Visa network. In the standard process, any crypto entity would have to send fiat US dollars to Visa, which creates treasury and conversion problems for crypto businesses.  
• ?? My Analysis: When you swipe or make a payment online, no money moves. You've "authorized" that transaction; the money movement takes place later (at settlement).  Visa and Mastercard set rules about how that money moves from merchants and through to different banks. This gives the payment schemes a lot of power that sits outside of regulation or legislation (albeit, the scheme's partner closely with government agencies).
• ?? My Analysis: By adding a rule that says a merchant or bank can settle its obligation in USDC, Visa has essentially said that for the largest payment network in the world, USDC and USD are the same.   For now, this is only a pilot and only for crypto native businesses, but the optics of this announcement are more significant than the scale.
• Morgan Stanley and George Soros announced an investment in NYDIG - who are now positioned to be the default partner for traditional institutions looking to get into crypto. NYDIG handles much of the complexity like KYC / AML, asset management, and crypto custody for traditional institutions. 
• ?? My Analysis: Traditional banks are now taking crypto seriously, having seen demand from their customers and Robinhood, Square, and Paypal's success integrating Bitcoin.
• ?? My Analysis: What happens when accounting packages want to embed crypto, or if you wanted to do crypto payroll?  The all-in-one "we handle the hard stuff in crypto in a regulated way" has the opportunity to become a sort of Stripe-like on-ramp for companies of that type.

Good reads ??

1. Cash app is culture (Part 1, Part 2)

• "Cash App is culture" is shorthand for things Square does that seem to either make no sense or is why Square is so successful. Cash app does $41 Gross Profit per 36m monthly active customers and was created during an internal company hackathon. In Part 1, Alex argues that the competitive environment is changing, and Square's dominance for Cash App is not guaranteed.
• Culture can't be commoditized; Cash App has experimented with hip-hop artists and influences and worn those collaborations well. What made this so powerful is the collaborators tend to like using Cash App. As a result, Cash App is now getting name-checked in dozens of songs for free.  Square has demonstrated it respects artists, and in turn, won respect from the artists.
• ?? My Analysis: These two posts should be required reading for anyone building for consumers. Fintech has become culturally relevant during the pandemic, but much of that has been driven by Cash App.
• ?? My Analysis: Imagine a traditional bank being name-checked in a hip-hop track? It would just feel so wrong. Square is actively building its brand around its product, and now Square will build its product around its brand.
• ?? My Analysis: I love Alex's breakdown of the Square roadmap, but the big theme that stood out for me was; Square is intentionally building tools for creators.  Where every SMB service like Ramp, Brex, or Mercury is for a software company, or where Stir and Juice are broader platforms, Cash App is Cash App. A culturally relevant, low-key super app for running a creative business.

2. Is chimes valuation right?

• Chime is reportedly going public at a $30bn valuation target; double its last round 6 months ago and 20x its valuation vs. two years ago. That would make it larger than Fifth Third without actually being a bank (yet).  The claim is "because they're more like a software company than a bank" Jason points out that's what many early fintech lenders said (e.g., Ondeck and Lending Club) who both took a pummeling in public markets post IPO.
• ?? My Analysis: The difference between Chime and Monzo is striking.  With 5m customers and the highest net promoter score of any UK company, Monzo is valued at less than $1.5bn, while Chime, with its $12m customers, is valued at $30bn.  I know there's more interchange in the USA with Durbin Debit, but what gives?
• ?? My Analysis: Consumer fintech in the US is definitely in a bubble. Consumer fintech in the US is also delivering staggering earnings growth (Stripe, PayPal, Square, etc.) Both these things are true.  
• ?? My Analysis: The question for Chime will be, can they drive other sources of revenue?  Where CashApp does real-time payments, tips and Bitcoin, what will Chime do?

That's all, folks. ??